Sept Market and Portfolio Review
August proved to be one of our best months thus far as our tech names rebounded strongly after Q2 earnings that were well ahead of expectations and reinforced our decision to maintain current position weightings.
Important points for this month and through yearend:
- Yields, yields, yields. Market focus is squarely on the 10 and 30 yr Treasury bonds for direction. The 10-yr now sits at 4.80%, a multi-year high, and 5% is seen as a “breaking point” for equity investors. The 30-yr is at 5.25% and also poses a threat as our national debt crossed $40T, with much of it issued at the long end of the curve (20+ yrs). The Treasury recently did some accounting “finagling” by issuing short-term treasury Bills (<2 yr maturity) to pay down on 30-yr outstanding bonds. This was nothing more than moving money from the left pocket to the right pocket and did little to assuage the bond yields meaningfully. The real reason these long bonds are declining in value and interest rates increasing is the concern about inflation. You might recall my previous emails have outlined 2 key headwinds in our market: Iran and inflation.
- Iran and inflation. I feel the cork is about to blow on Iran. The increased bravado of Iran to launch missiles at our warships demonstrates their unwillingness to surrender or even negotiate any peace. The U.S. follow-up attacks are only the beginning, and I can easily see us and/or Israel, launching a full-on assault to get this conflict over with decided fashion and conviction. This leads to the issue of inflation. As opined, diesel fuel cost is the underlying cause for our sustained inflation. It is at a multi-year high and funnels through nearly every part of our economy. This increase is due to the obvious – higher oil prices, but also reduced refining capacity globally, primarily in Russia. This persistent, annoying inflation headwind leads to the next concern: the Federal Reserve strategy. Thursday and Friday will see inflation numbers for August, which I believe will remain on the “hot” side.
- Federal Reserve strategy. Kevin Warsh became the new Chairman in May, and it has not been a smooth one. He has retraced years of Fed transparency and replaced it with a sense of secrecy that is lowering the Fed’s credibility and will lead to potential market shocks when they actually decide on rates. Their meeting next week will likely see the same “no change” decision, although the market is forecasting a 60% chance of a rate hike of 0.25%. My forecast is no move in Sept, but a 0.25% hike in Dec, with a possibility of additional increases in early 2027. Not pretty.
- September woes. Historically, September is the worst performing month of the year and could be especially acute given the previous 3 bullet points, and mid-term elections coming in November. I’m not overly concerned about this month in particular, but more so the potential economic threats I’ve outlined, which could be exacerbated anytime over the next 3-6 months. Let us also remember that historically, July is the best month, and it was a disaster!
- Portfolio adjustments. We have much ground to cover to reach our goal of exceeding the overall market performance. We will do this smartly by investing in our best performers that meet our technical and fundamental criteria. Technology is modestly positioned after our recent rebalance and no additional funds to be allocated. However, a few positions, in the EU, have failed to perform this year and we will drop them from our portfolio models: Ryanair (RYAAY) and Smith & Nephew (SNN). Choosing to drop losers is as important as keeping gainers for a balanced, efficient portfolio. Proceeds will be used to add to our low-volatility positions including bond and preferred stock positions.
As always, please let me know if you have any questions or concerns,
Paul
Paul Wildberger, CFP®, MBA
President & CIO, Integrity Private Wealth Advisors, LLC
5956 Sherry Ln
Suite 2000
Dallas, TX 75225
214-729-1460
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